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Asian Investments Start to Pay Off for Qiagen As Q2 Sales Rise Over 30 Percent in Region

Bolstered by investments made in Asia over the past year, Qiagen this week said that sales in the region grew 30 percent year over year to roughly $9.1 million for the second quarter.
 
The firm made several moves last year to expand its footprint in Asia, including acquiring Tianwei Times and Shenzhen PG Biotech, and opening an office in Shanghai.
 
It now appears those actions are paying off — and not only in the form of rising sales. Qiagen officials this week also said that PG Biotech has begun collaborating with its assay-development center in Hamburg, Germany, to expand its line of molecular diagnostic products.
 
In addition, Qiagen said that overall second-quarter revenues rose 13 percent, 10 percent of which was organic growth, to $113.2 million from $100.4 million in the comparable quarter last year.
 
“What was really nice to see was a big jump in Asia,” said Qiagen CEO Peer Schatz during a conference call. Qiagen had “very strong growth, especially in China, but also Japan continues to perform very nicely after a difficult period about two years ago,” he said.
 
As of June 30, Qiagen had 268 employees in Asia, up from 102 a year ago. The firm’s sales staff grew to 136 from 53, and its marketing staff increased to 30 from 18.
 
“We clearly invested heavily in 2005 into expanding our footprint in Asia, and we’re seeing the fruit of that in the year 2006,” said Schatz.
 
The key to the firm’s growth in the Asian market was its $14.5-million acquisition of PG Biotech in September 2005 (see BioCommerce Week 9/29/2005). The acquisition provided the company with more than 10 assays approved by the Chinese State Food and Drug Administration, more than 20 employees focused on assay development, and an established sales channel and regulatory expertise in the Chinese market. It also complemented Artus, a manufacturer of PCR-based diagnostic assays that Qiagen acquired in June 2005 (see BioCommerce Week 6/2/2005).
 
Artus became Qiagen’s assay-development center of excellence in Hamburg, and is now integrating assay-development projects with PG Biotech in Shenzhen, according to Schatz. “We feel quite good about our pipeline going forward, [and] we’ve invested quite a bit into assay development.
 
“The diagnostics market in China is quite advanced. The use of molecular techniques is widespread … [and] it’s pretty standardized,” said Schatz. “We think that this growth will continue going forward for quite some time. It’s difficult to say where we are in five years but the outlook that we’re getting … is that we should see comparable growth rates to what we see today” — over 30 percent.
 
Consumables Drive Q2 Sales
 
Qiagen said that its revenue growth for the quarter was driven by a 14-percent spike in its consumables business, 11 percent of which was organic, while organic instrumentation sales increased 2 percent.
 
Sales in North America grew approximately 9 percent and represented about 45 percent of Qiagen’s overall business, while European sales grew 14 percent and represented about 45 percent of overall sales.
 
Approximately 10 percent of Qiagen’s 13-percent revenue growth was organic, and acquisitions contributed about 3 percent. Schatz noted during the call that Qiagen’s organic growth of 10 percent was well ahead of the industry trend for the quarter.
 
“I can’t say we are seeing an organic growth rate in the other markets [outside of molecular diagnostics] in excess of the average growth rate [for the industry], which we understand is around 4 percent, depending on who you include or exclude,” Schatz said.
 

“The use of molecular techniques is widespread … [and] it’s pretty standardized. We think that this growth will continue going forward for quite some time.”

According to a slide presentation that accompanied the conference call, the firm compared its organic growth rate to the average from firms including Beckman Coulter, Bruker Biosciences, Stratagene, Bio-Rad, Applied Biosystems, Invitrogen, Fisher Scientific, Thermo Electron, Sigma-Aldrich, and Millipore — all of which are its BCW Index rivals.
 
“You might want to say that half of that premium we have in organic growth rate might be coming from a focus on higher-growth market segments,” said Schatz.
 
According to Qiagen, sales to the academic market represent roughly 40 percent of its sales, while sales to the pharmaceutical and biotech markets represent 25 percent of revenue. Diagnostics sales accounted for approximately 25 percent of the firm’s sales in the second quarter, and applied testing sales accounted for 10 percent.
 
“In the pharma sector, we saw strong growth across the board, both US and Europe,” said Schatz. “We have a big focus on pharma here that we initiated in 2006, especially in the area of biomedical research, and this is paying off very handsomely.”
 
Schatz said the firm’s molecular diagnostics business is growing about twice as fast as the company’s overall business, though he said the firm does not break out sales by product category.
 
Qiagen’s net income for the second quarter rose 3 percent to $14.2 million, or $.09 per share, from $13.8 million, or $.09 per share, in Q2 2005. Excluding acquisition and integration-related expenses of $3.8 million, relocation and restructuring costs of $600,000, and amortization on IP costs of $1.2 million, the firm’s net income was $19.8 million, or $.13 per share, for the quarter.
 
The company spent about $10.2 million on R&D in the second quarter, up 17 percent from $8.7 million in the comparable period last year.
 
As of June 30, Qiagen had approximately $473 million in cash and cash equivalents.